Report on energy policy ‘offers little new wisdom’

Professor Mitchell said that, whilst it is true that the UK’s recent Electricity Market Reform (EMR) has seen a very large interventionist, non-market side to energy policy, this has been driven not by renewable energy but by the determination of the Coalition to build new nuclear power.

Professor Mitchell challenged the view that the electricity sector should be treated as entirely competitive, arguing that the current system in the UK is not particularly competitive other than in a very classical economics way: its still difficult for new entrants; there is still momentum or inertia in the system; and price and profits are not transparent.

She disagreed with the argument that using economic regulation as a tool of government policy is incompatible with having a competitive market and that standard economic policy instruments such as taxation are the way forward.

The report also downplays climate change as a problem, said Professor Mitchell. She said: “If one thinks that the environment matters and investment in low carbon and energy efficiency matters, then the problem with this argument, of using standard economic instruments, is that it just doesn’t work.

“There is a wide economic literature that shows that investment does not occur on the back of general economic instruments, only with specific technology policies which can be used as the basis for finance - hence targets, renewable energy policies and so on.”

Professor Mitchell also said that the discussion of renewable energy and intermittency did not reflect the evidence of system operation in Denmark and Germany. She said: “German wholesale prices have dropped by about 40 percent because of variable power - renewables displace expensive fossil fuels and bring down peak prices.

“This may not not good for fossil fuels but it is good for consumers. What is needed is an electricity market that is constructed to best integrate renewable energy and energy efficiency for the benefit of customers, the environment and security.”

Professor Mitchell also said that demand side measures, which can reduce demand for electricity at peak times, could both reduce capacity needs and also help with system operation.

Professor Mitchell said: “These hope-to-be-hatchet jobs would benefit from an injection of realism from operating electricity systems with high proportions of renewables, integrated with the demand side.

“Energy systems are social constructs and a competitive energy system with high proportions of renewable energy and energy efficiency is eminently possible.”